Spotting Trouble Ahead

Spotting Trouble Ahead

Colin Gillis, director of research at Chatham Road Partners, suggests shorting Spotify. He explains his analysis and the key levels to watch in this interview with Justine Underhill. Filmed on May 30, 2018.

Would be interesting to see if RV could provide a follow up or release comments on this trade as it has greatly continued to work against the laid out idea. Like the shorter time frame video but really more info is needed.

Glad to see the pace and vibe pickup! Tight presentation by guest, well edited, fact filled and nice work by Justine. Bravo!
I would have added some thoughts about the float and increase share release coming. Also - thanks for tightening up the excessive music intro and listening !

Like the trade idea segments. However, this one is very short on risk management. He just says "short on strength" but doesn't really say where he is wrong, where he would cut. Seems all a little arbitrary

I realize these are supposed to be bite sized, but a little more depth would be appreciated. The presenter claims there is no operating leverage due to structure of music licensing industry. It would've been great if Justine would have asked him to elaborate on that for a minute or two since it seems to be the crux of his thesis. Without that little bit of extra depth, it's the same empty calorie content you get from traditional cable financial media that you are trying to be different from, IMO.

I agree. I know these are supposed to be short snippets but it would be great if more of the "why" can be explained for their arguments. Otherwise it is like watching Fast Money on CNBC where they provide a trade idea with very limited substantiation which I don't think helps the newer users to this platform. It would also be interesting for RV to track how successful all of these long/short trade ideas have been by contributor.

Rob, that's a good point. The relationship between Spotify and the major labels is complicated-- and in some ways the industries are codependent. Here's a quote from a New Constructs research report I found particularly useful:
"The "Big 3" record labels-Universal Music, Sony Music, and Warner Music-along with Merlin, which represents a large number of independent artists, accounted for more than 85% of all [Spotify] streams in 2017.
The oligopolistic nature of the music business gives the record labels a significant amount of leverage in negotiations with Spotify. All the major labels have "most favored nations" provisions in their contracts, which means Spotify cannot give more favorable terms to one label without extending those same terms to all the others. In essence, Spotify has to negotiate with the major labels as a unified block.
… Spotify managed to negotiate better rates with the labels in 2017, which helped its gross margins improve from 14% to 21%. However, that increase comes with a significant caveat. The major labels all have significant equity positions in Spotify, and they had an incentive to help the company go public faster in order to avoid triggering clauses in its convertible debt that would have diluted their equity. The labels won't have this same incentive to grant more favorable terms when terms are renegotiated in 2019."
https://www.newconstructs.com/how-much-should-investors-pay-for-spotify/
Definitely something we'll bring up next time.